While most of us understand that there are limitations when it comes to insurance and what it covers, sometimes we can get frustrated when claims are not covered.  We totally understand.

Let’s take a moment to understand how insurance works.  One concept that is necessary to understand is that not all risk is insurable.  For example, if you lose money at the casino, there’s no insurance coverage for that because that is a speculative risk and if everyone could get insurance for gambling, wouldn’t we all keep gambling until we win big?  Of course we would!

For Risk to be insurable it must have the following characteristics – Loss occurrence must be due to chance, and the risk must be measurable with statistical predictability.  Insurable risk must generally lack  catastrophic exposure and be random. The risk of loss must also come from legal activities.  Lastly, the loss exposure but not be too large to insure but there must be the ability pool risk from a large number of similar exposures so that the losses of a few can be covered by the contributions of many.  The larger the number of exposures, the greater the predictability.

One of the most talked about insurance coverages since the start of the Covid-19 pandemic has been Business Interruption insurance.  While the name of business interruption insurance would make you feel like the outcome of the pandemic would be covered, it is not.  There are exclusions for viruses built into insurance policies because the potential loss would be too large to insure.  Other insurance like car or life insurance has predictable statistics and large numbers of participants in the pool, so rates can be determined and collected premiums can cover the losses that occur. 

When looking at your risk and trying to understand what you can and cannot insure and at what cost, we encourage you to contact us for consultation.

Share This